The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Around the world, Delaware has been recognized as having the strongest corporate law structure. Business owners often form a Delaware company regardless of the state in which they are operating, due to the many advantages of forming in Delaware.
When operating in another state, such as Texas, business owners must register their company as a foreign entity. This process is called Foreign Qualification and it is typically the next step after forming a Delaware corporation.
The foreign registration is how Texas gives you the permission or authority to have a Delaware corporation doing business in Texas.
Texas, like most states, has a state fee and an application process in order to register your Delaware corporation there as a foreign entity. The document that you will receive back is called a Certificate of Authority. While Texas is one of the faster states to approve this registration, one mistake can delay the process and slow down business for the directors.
However, we have a Foreign Qualification department that files these applications every day. We will prepare your application, pay the state fees and file the document directly with Texas. Texas has different forms to be filed, depending on whether you have a for-profit corporation, a professional corporation or a non-profit corporation.
Unlike many other states, Texas does not require a Certificate of Good Standing from Delaware in order to register as a foreign entity in Texas.
Texas requires that the company has a Texas Registered Agent. We can act as the Registered Agent in Texas for you. Any legal documents, service of process or Franchise Tax notices will be sent directly to the Registered Agent. The Texas Registered Agent will not need to sign the application; however, please note that Texas will not allow you to list your own company as the Registered Agent.
Once the application is prepared, an authorized person will need to sign on behalf of the company. When listing an address for the Directors, Texas will allow you to use a P.O. Box rather than a home address if privacy issues are a concern.
Once your Delaware corporation is registered in Texas, you will be subject to a Texas state Franchise Tax. Franchise Tax and reporting requirements will be sent to the Registered Agent's address.
Texas does not require a corporation to file an annual report; instead, the state requires an information report. This is submitted when the Franchise Taxes are paid. This information report can be compared to a tax return, and can be quite complicated. Often clients will reach out to an accountant for assistance, or we can help you.
Our typical turnaround time to file a Delaware corporation for foreign qualification in Texas is two days. To start this process, or for any additional questions on operating a Delaware corporation in Texas, please call 1-800-345-2677, Ext. 6130.
One financial decision that a lot of entrepreneurs seem to struggle with is the question of how much cash reserves their business should maintain.
Hold too little cash and you could find yourself in serious trouble if your business takes a turn for the worse. Hold too much at today’s rates and that may prevent you from investing to your company’s growth to your full capacity.
When it comes to personal finances, a generally accepted rule of thumb is that we should all have enough cash on hand to cover six months of expenses in case of emergency. While I’ve heard this same advice given to small business owners, in reality there is no one-size-fits-all approach that applies to everyone’s business.
Instead, the answer requires an assessment of where your company is in its lifecycle, as well as a look at some quantitative factors and a bit of worst-case scenario planning.
If you’ve got an early-stage company without much revenue, then it probably isn’t practical or sensible to stash away enough cash to cover six months or more of operating expenses. But it’s definitely smart to start planning for the future and adopting a prudent approach to cash management.
That’s why startups should consider setting aside a small portion of their revenues, five to 10 percent, in a reserve account and then re-assessing their needs as the company grows.
Once you’re past the start-up stage and have a consistent revenue stream, there are a few steps you should take to help determine the right size for your cash reserves:
While there is no magic number that you’re looking for, you should have enough to cover at least a few months, and if your business is seasonal or depends on big orders that can be few and far between, you’re definitely going to want a larger reserve.
In addition to performing the preceding quantitative exercise, it’s also prudent to ask what-if questions that can help you prepare for a reversal of fortune. Questions like, "What if I lose my best customer or my top-producing salesperson?" In order to come up with actionable results, try to assign a dollar value to each scenario as well as the probability that it will occur.
For example, if losing your top producer would cost you $100,000 and there is a 10% chance that he will leave this year based on your company's turnover history, then you should set aside $10,000 in cash to cover this possibility.
Hopefully by doing a bit of financial analysis and some sensible planning for the future, you’ll come up with a cash reserve that's big enough to see you through the tough times—but not too big to keep you from investing in your growth.
Delaware’s legal system has been ranked No. 1 for the tenth year in a row by the U.S. Chamber of Commerce and, since Delaware corporations can operate anywhere in the world, many business owners choose to incorporate their companies in Delaware.
However, there is typically another step to take in order to remain in compliance in other states, such as New York.
When incorporating your business in Delaware, your company will be considered domestic to Delaware and foreign to every other state. Often, after people form a Delaware corporation, they register the company as a foreign entity in their home state in order to stay compliant.
This is especially important when operating a Delaware corporation in New York. Once registered in New York, you will be given a Certificate of Authority.
This is New York’s way of giving you permission to operate your Delaware corporation in New York. If you fail to file for Foreign Qualification in New York, you may be putting your company at risk; you also may incur a fine from the state of New York.
New York requires a filing fee, an application for authority, and also a Certificate of Good Standing from Delaware. There are different application forms available to match your specific type of corporation. The Certificate of Good Standing must be current (dated within one year of filing).
New York will need to know the physical address of your business, the nature of your business and your Registered Agent’s address, so the state will know where to send any legal documents or service of process. New York differs from many other states in that the foreign company's Registered Agent's address does not have to be in New York.
New York does not require the Registered Agent to sign the application; rather, any person authorized by your company can sign the application. In most cases, this is the president.
After registering as a foreign entity in New York, you will need to file a biennial report in order to remain in good standing. This report is due on the last day of the month two years after you register to operate in New York.
There is no publishing requirement for a Delaware corporation registering in New York.
Normal processing time for New York to process the Certificate of Authority is three to four weeks, plus additional time for mailing. However, we can obtain your Certificate of Authority, and the typical turnaround time is five to seven business days.
We will prepare the application, obtain your Certificate of Good Standing, file the package with New York Department of State and email you the Certificate of Authority as soon as it is approved. This gives you the opportunity to spend your time doing what you do best, which is running your business.
For more information on registering a Delaware corporation in New York, please call 1-800-345-2677, Ext. 6130.
When forming an LLC, Delaware is often the popular choice because it has the strongest corporate law structure. Delaware’s legal climate has been ranked No. 1 for the 11th year in a row by the U.S. Chamber of Commerce, which contributes to the popularity of forming a Delaware LLC—regardless of the state in which you will be running the business.
When operating a Delaware LLC in North Carolina, your business will be considered domestic to Delaware and foreign to North Carolina. North Carolina has a process called foreign qualification which enables a Delaware company to have the authority to operate in North Carolina. Like most states, North Carolina will have an application process, a state fee, and also require additional documentation from Delaware.
How do you know if this foreign qualification process pertains to you? Typically clients will register a Delaware LLC in North Carolina as a foreign entity if they have any type of physical presence there. This could mean an office, an employee, a bank account, or simply running the business from their home office which is located in North Carolina.
So what to do? Generally clients will look to their Delaware registered agent for help with this process. Harvard Business Services, home of the $50 Delaware registered agent fee, would be happy to assist with this process. Since 1981, Harvard Business Services has helped clients to form Delaware LLCs and operate successfully all over the world. First, we'll prepare the application and send it you for signature. We also know that North Carolina will require a certificate of good standing from the state of Delaware. We will obtain this from the state and include it in the package. Once we have your signatures, we will then file this application with North Carolina, pay the state fee, and send you the Certificate of Authority once it is approved. The process will typically take about a week.
North Carolina will also require that Delaware LLCs have a registered agent address in North Carolina. This is for the purpose of receiving any legal documents or service of process from the state. This is also a service that Harvard Business Services can provide.
Once your business is registered as a foreign entity in North Carolina, the state of North Carolina will require an annual report. This report is $202, and is due by April 15 the year after you are registered in North Carolina. Your registered agent will send you a reminder about this report. North Carolina does not have a publishing requirement unless it is specifically required by the county of your registered agent.
For more information on registering your Delaware LLC in North Carolina or having a registered agent in North Carolina, please contact Harvard Business Services at 1-800-345-2677 ext. 6130 or firstname.lastname@example.org.
In this blog we explain the answer to the most common question we encounter: "What's on the public record in Delaware?"
A Delaware LLC filed through a professional Registered Agent affords you the highest level of confidentiality. Only the company name and the name and address of the Registered Agent typically appear on the Certificate of Formation, along with the date of filing and the company file number.
Here is what Delaware LLC privacy offers: No information about the members or managers is required to be listed on the Certificate of Formation, and the Delaware Division of Corporations does not request, obtain or store any information regarding the LLC’s members and managers.
Your Delaware Registered Agent is required, however, to maintain a record of the contact person for the LLC, including the contact person's address. The contact person must be an actual person who is at least 18 years of age.
The contact person does not have to be a member or manager of the LLC and does not need to reside in the United States or be a United States citizen.
After the initial formation, a Franchise Tax of $300 for the prior year's Franchise Tax is required to be paid, on or before June 1 of each year. If the Franchise Tax is not paid on time, a $200 penalty is assessed on June 2, and interest is assessed immediately.
The state of Delaware records all Franchise Tax payments, including the date and amount of each payment. If you pay your Franchise Tax on the state's website, the state will then have a record of the transaction, including the credit card number used.
If we are your Registered Agent and you take advantage of our service to pay the Franchise Tax through our website, the state will not have your credit card number, since we pay many companies' Franchise Taxes in bulk payments via our direct deposit account with the state of Delaware. Again, in this case, neither your member nor your management data will appear on any Delaware public records.
For Delaware LLCs formed and maintained through Harvard Business Services, Inc., the state of Delaware's public record will, therefore, contain no information about your LLC's members and/or managers. Your Delaware LLC privacy level will be 100%.
Delaware Corporation Privacy
Corporations can also be filed in Delaware through a Registered Agent without listing shareholders, directors or officers on the public record.
However, after the initial filing, every Delaware corporation is required to file a Franchise Tax payment on or before March 1 of each year and, in doing so, must list the names and addresses of the company's directors and officers.
This information is required even if your Delaware Registered Agent pays your Franchise Taxes for you. Therefore, this information may be obtained by anyone requesting it from the Delaware Division of Corporations (for a $10 payment). Some states post this information on their websites, but Delaware does not.
When self-filing either type of entity directly with the Delaware Division of Corporations, individuals are required to list their name and address as the incorporator of the company on the formation documents.
These documents can be viewed on the Delaware public record from the first day the company is formed and will remain on the Delaware public record for the life of the company.
Privacy and confidentiality regarding the public record should not be mistaken for invisibility in the eyes of the authorities, should fraud occur and be discovered. The Delaware Attorney General's Office is diligent in punishing the fraudulent use of Delaware companies.
The necessity of possessing the ability to shield a company's ownership from public records plays a valid role in today's business world. Business is very competitive by nature, and the element of confidentiality can be crucial in many perfectly legitimate business transactions that would not happen without strict confidentiality.
MORE INFORMATION ON DELAWARE LLCs: